Plan 1 has a safe harbor match of 100% on 1st 4%.

Plan 2 has a safe harbor match of 100% on first 3%, plus 50% on next 2%.

They want to merge plan 1 in to plan 2 mid-year.

Seems to me they may have to wait until the end of the year or it will invoke testing?

If medical expenses for a participant are paid by an employer Health Reimbursement Arrangement or Flexible Spending Account would this be considered a medical expenses for hardship purposes (i.e., the plan following the safe harbor reasons)?

Hi All,

I often work with small plans that use brokerage accounts at wire house, such as Morgan Stanley Smith Barney ("MSSB"), as custodian of the plan assets. It has come to my attention that, upon any qualified plan distribution, MSSB now requires the plan trustees to sign an agreement to hold MSSB harmless and to indemnify MSSB for any issues that arise from any such distribution. While unnecessary, I don't have a major issue with the hold harmless language. However, I think it's egregious for MSSB to require indemnities to process plan distributions. Both in the account application and the letter that the trustees must now sign upon a plan distribution, the trustees have already agreed to hold MSSB harmless for any issues (including tax issues) related to the plan distribution. For MSSB to force their clients (who pay them handily to custodian their plan assets) to indemnify them for any costs, including attorneys fees, in order to process plan distributions from their own accounts, which were established without prior notice of such indemnities, is absurd, if not unethical. For example, if MSSB settles with any party (e.g., IRS, DOL, participant, beneficiary, etc.), the plan trustees will be forced to be bound by that settlement by virtue of the indemnification clause.

I'm sure that many of the independent (non-producing) TPAs on this board who deal with smaller plans have clients who use MSSB to custodian their plan assets. I'm in the process of trying to work with MSSB's compliance and legal departments to have them remove the indemnity provision from their plan distribution agreement. However, from past dealing with MSSB and other large financial institutions, I anticipate that I will not receive the desired resolution. If, after I hear back from MSSB, they continue to insist on including the indemnity provision in their required plan distribution agreements, does anyone have any suggestions in relation to starting a "grassroots effort" to show solidarity regarding this issue to try to force MSSB to change its ways?

Thank you for your time and response to this matter.

Best,

Todd Heller, Esq., CPC

Heller Pension Associates, Inc.

theller@hellerpension.com

If a person owns all of a company that sponsors a 401k plan and is the plan's only trustee, can he continue to so serve after declaring personal bankruptcy?

Plan is using average value method for 2009 and 2010 plan years for PPA funding. First question, can employer switch to Market value for 2011 without requesting approval?? If so, is there a minimum amount of years they would be required to stay with Market Value or would they be able to request approval to switch back to Average Value at any time after 2011 (whether or not approval is granted is another issue). Thanks.

Question 10h of Form 5500-SF says "If this is an individual account plan, was a blackout period? There is an error when e-filed (through Web Client) that says that 10h must be answered. This a filing error and must be amended. This error comes up in the latest Relius Govt Forms Form 5500 2011 update.

This is not a yes or no question. If it's a pooled account for a DC plan or a DB plan then I believe it would be left blank. The instructions say "Code section 401(k) and other individual account pension plans must complete line 10h. Other filers should leave line 10h blank."

What is everyone doing. Answer 10h "no" and amend the filing so it goes through?

I am restructuring into two component plans, as follows:

1) plan covering everyone getting profit sharing contriubtions, and

2) plan covering those not getting PS due to a last day rule

Is Plan 1 barred from treating anyone in plan 2 as a "term with a break" because restructuring requires that plans pass coverage "as though they were a separate plan."

Two members of a controlled group (owners are spouses and have their own corporations – community property state) are contemplating setup of a retirement plan for employees of their business.

Husband's business is a professional corporation (16 employees) while the wife operates a grocery store (4 employees).

Since this is a brother-sister controlled group, both businesses are considered a "Single Employer" (hope there is no disagreement here....!!!).

Questions:

Would the defined benefit plan be covered under the PBGC?

For purposes of deduction of contributions, what is a reasonable method?

Am I doing this correctly? I haven't done any 417(e) calcs using segment rates other than lump sums, so I wanted to be sure that I'm not missing something.

Facts:

Participant age = 71 = normal retirement age

Normal Retirement Benefit = $10,000

Plan normal form is single life annuity

A.E. is 5.0% interest and 94 GAR mortality (post retirement only) (age 71 a.p.r. = 119.2314)

417(e) factors are 2.47%, 5.07%, 6.10% - mortality is RP11CU (age 71 PV factor = 122.9886- assume this factor is correct)

Participant elected 26 year term certain annuity so they will receive the greater of 1) and 2) below:

1 - plan basis: $10,000 x 119.2314 / 15.0939 (26 year term certain annuity at 5%) = 78,993

2 - 417e basis: $10,000 x 122.9886 / 14.8326 (26 year term certain annuity with first 5 years at 2.47%, next 15 at 5.07% and the remaining years at 6.10%) = 82,918

In this case the participant receives the amount under the 417e factors of $82,918 annually.

Thanks in advance.

A plan document provides for a normal retirement benefit of a flat percentage of high 3 year pay - 254%, reduced for years of participation at retirement less than 25. The benefit is accrued fractionally over years of participation. NRA is later of 65 & 5th anniversary of participation.

Participant enters plan at age 66, so his NRA is determined by 5 years of participation and his normal retirement benefit before the accrual fraction is 254%*5/25=50.8% and has been for each of the last 5 years.

If he continues in employment past retirement, will his NRB reduction fraction increase for additional years of participation, i.e. would next year be 254%*6/25 = 60.96%?

Is a Critical Status Notice only needed for Multiemployer Plans with low funding, or is it also needed for Single Employer Plans in a similar position?

If fewer than 50% of eligible employees make elective deferrals, and all of the elective deferrals are disallowed, do the elective deferrals count against the annual addition limitation?

Thanks

Under the proposed regs, the amortization charge is prorated for the short plan year but the TNC isn't. This leads to (2) questions:

(1) How would you handle the expense portion of the TNC? We could prorate some or all of the expense. For example, suppose a SPY of 8/1/2010-12/31/2010. Let's say the expense assumption is that the current year's expense is assumed to be the same as the prior year's expense. However, let's suppose that during the SPY that no PBGC premium would be paid by the Plan. I.e., such premium would have normally been paid 1/1/2011-7/31/2011. Would make sense to exclude this from the expense before proration?

(2) How is the amortization factor determined -- over calendar years or Plan Years? Let's say there are no existing bases but a base is created 8/1/2010. Let's also say for the sake of illustration ease that all segment rates are equal. Would the amortization factor be determined as an annuity over seven years, or would it be 5/12 +v^(5/12)x annuity (6 years)? Thus, come 1/1/2011 we would determine the remaining unamortized base from either an annuity (6 7/12 years) or annuity (6 years). In either case, it would seem if there are existing bases and charges 8/1/2010 that they would need to be adjusted in some fashion for the change in Plan Year.

Can the schedule Q demos to the Form 5300 determination letter application be completed based on projected data? We have a new plan and would like the IRS to rule on the coveraged and nondiscrimination methodologies that will be used.

An employee is out on workers' comp on the date he would be eligible to participate in the plan. I searched the site, but I don't see anything regarding this. Would this employee be considered an eligible employee if he is not working due to workers' comp on his eligibility date or can we consider him terminated and not consider him eligible. The document says the employee must be employed on the eligibility date, but I'm not certain if he is "employed" if he is being paid from workers' comp. Thanks

The proposed regs on cash balance plans gave us new market rate of return options but left some unanswered questions in my mind particularly with regards to what interest credit for FUNDING purposes you would use to project the account balance to NRA if say you have a market return that is negative for the year or even say a modest 1%. Is this an actuarial assumption that can/should be different than the actual rate of return credited to the theoretical accounts for the year ? Any ideas/opinions ?

My client would like to know whether short-term disability compensation paid by the state of California should be considered compensation for the purpose of a

401(k) plan and to calculate company contributions?

Short-term disability compensation paid directly by Company is considered compensation by the client, but they don’t know if the disability paid by the state of California, which is the only state with such provision, should count.

Plan specifies that non 5% owners get actuarial increases the April 1st after age 70.5. Can anyone point to or provide guidance whether or not this applies if the participant has reached NRA (5 years participation is required.)

Thanks.

The partners have K1s with heavy loss. The CPA has also issued them W2 for some compensatoin paid to them. I think that the W2 is incorrect and is really just guaranteed payments that should have been reported on K1, but that isn't my question. Am I correct (I hope not) that the loss on K1 gets added to these W2 to determine if these partners have any plan compensation?

The interest is the greater of the actual interest or a market rate of interest. For the latter, do we use prime plus 2% (as suggested in the IRM), or can we use the 6621(a) underpayment rate?